Adam Smith (1723-1790)The Wealth of Nations
(1776)
Excerpts from the Original
Electronic Text at the web site Eris Project at Virginia Tech.

Although known today primarily as an economist, Adam Smith was a philosophe
who, like his older friend David Hume, wrote on a wide range of subjects,
including the history of science, moral philosophy, and jurisprudence. In
his Wealth of Nations, Smith seeks to explain the creation of wealth,
giving consideration to human nature, different systems of political economy,
and the history of Western and world economies. His defense of the free
market is often regarded as the definitive statement of laissez-faire capitalism
and classical economic liberalism.

Questions
1. Of what importance is the division of labor? What methods did Smith
use to arrive at his conclusions?
2. What is the "natural" and "market" price? What economic process is Smith
describing in Book 1, Chapter 7?
3. What is the "invisible hand" (paragraph 9)? What function does it play?
4. What are the effects of governments and monopolies on the economy?

Book 1
Of the Causes of the Improvement in the Productive Powers of Labour

Chapter 1
Of the Division of Labour

[1] THE greatest improvement in the productive powers of labour,
and the greater part of the skill, dexterity, and judgment with which it is
anywhere directed, or applied, seem to have been the effects of the division
of labour.

[2] The effects of the division of labour, in the general business
of society, will be more easily understood by considering in what manner
it operates in some particular manufactures. It is commonly supposed to be
carried furthest in some very trifling ones; not perhaps that it really is
carried further in them than in others of more importance: but in those trifling
manufactures which are destined to supply the small wants of but a small
number of people, the whole number of workmen must necessarily be small;
and those employed in every different branch of the work can often be collected
into the same workhouse, and placed at once under the view of the spectator.
In those great manufactures, on the contrary, which are destined to supply
the great wants of the great body of the people, every different branch of
the work employs so great a number of workmen that it is impossible to collect
them all into the same workhouse. We can seldom see more, at one time, than
those employed in one single branch. Though in such manufactures, therefore,
the work may really be divided into a much greater number of parts than in
those of a more trifling nature, the division is not near so obvious, and
has accordingly been much less observed.

[3] To take an example, therefore, from a very trifling manufacture;
but one in which the division of labour has been very often taken notice
of, the trade of the pin-maker; a workman not educated to this business (which
the division of labour has rendered a distinct trade), nor acquainted with
the use of the machinery employed in it (to the invention of which the same
division of labour has probably given occasion), could scarce, perhaps, with
his utmost industry, make one pin in a day, and certainly could not make
twenty. But in the way in which this business is now carried on, not only
the whole work is a peculiar trade, but it is divided into a number of branches,
of which the greater part are likewise peculiar trades. One man draws out
the wire, another straights it, a third cuts it, a fourth points it, a fifth
grinds it at the top for receiving, the head; to make the head requires two
or three distinct operations; to put it on is a peculiar business, to whiten
the pins is another; it is even a trade by itself to put them into the paper;
and the important business of making a pin is, in this manner, divided into
about eighteen distinct operations, which, in some manufactories, are all
performed by distinct hands, though in others the same man will sometimes
perform two or three of them. I have seen a small manufactory of this kind
where ten men only were employed, and where some of them consequently performed
two or three distinct operations. But though they were very poor, and therefore
but indifferently accommodated with the necessary machinery, they could,
when they exerted themselves, make among them about twelve pounds of pins
in a day. There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards of forty-eight
thousand pins in a day. Each person, therefore, making a tenth part of forty-eight
thousand pins, might be considered as making four thousand eight hundred
pins in a day. But if they had all wrought separately and independently,
and without any of them having been educated to this peculiar business, they
certainly could not each of them have made twenty, perhaps not one pin in
a day; that is, certainly, not the two hundred and fortieth, perhaps not
the four thousand eight hundredth part of what they are at present capable
of performing, in consequence of a proper division and combination of their
different operations.

[4] In every other art and manufacture, the effects of the division
of labour are similar to what they are in this very trifling one; though,
in many of them, the labour can neither be so much subdivided, nor reduced
to so great a simplicity of operation. The division of labour, however, so
far as it can be introduced, occasions, in every art, a proportionable increase
of the productive powers of labour. The separation of different trades and
employments from one another seems to have taken place in consequence of
this advantage. This separation, too, is generally called furthest in those
countries which enjoy the highest degree of industry and improvement; what
is the work of one man in a rude state of society being generally that of
several in an improved one. In every improved society, the farmer is generally
nothing but a farmer; the manufacturer, nothing but a manufacturer. The labour,
too, which is necessary to produce any one complete manufacture is almost
always divided among a great number of hands. How many different trades are
employed in each branch of the linen and woollen manufactures from the growers
of the flax and the wool, to the bleachers and smoothers of the linen, or
to the dyers and dressers of the cloth! The nature of agriculture, indeed,
does not admit of so many subdivisions of labour, nor of so complete a separation
of one business from another, as manufactures. It is impossible to separate
so entirely the business of the grazier from that of the corn-farmer as the
trade of the carpenter is commonly separated from that of the smith. The
spinner is almost always a distinct person from the weaver; but the ploughman,
the harrower, the sower of the seed, and the reaper of the corn, are often
the same. The occasions for those different sorts of labour returning with
the different seasons of the year, it is impossible that one man should be
constantly employed in any one of them. This impossibility of making so complete
and entire a separation of all the different branches of labour employed
in agriculture is perhaps the reason why the improvement of the productive
powers of labour in this art does not always keep pace with their improvement
in manufactures.

Chapter 7
Of the natural and market Price of Commodities

[5] The actual price at which any commodity is commonly sold is
called its market price. It may either be above, or below, or exactly the
same with its natural price.

[6] The market price of every particular commodity is regulated
by the proportion between the quantity which is actually brought to market,
and the demand of those who are willing to pay the natural price of the commodity,
or the whole value of the rent, labour, and profit, which must be paid in
order to bring it thither. Such people may be called the effectual demanders,
and their demand the effectual demand; since it may be sufficient to effectuate
the bringing of the commodity to market. It is different from the absolute
demand. A very poor man may be said in some sense to have a demand for a
coach and six; he might like to have it; but his demand is not an effectual
demand, as the commodity can never be brought to market in order to satisfy
it.

[7] When the quantity of any commodity which is brought to market
falls short of the effectual demand, all those who are willing to pay the
whole value of the rent, wages, and profit, which must be paid in order to
bring it thither, cannot be supplied with the quantity which they want. Rather
than want it altogether, some of them will be willing to give more. A competition
will immediately begin among them, and the market price will rise more or
less above the natural price, according as either the greatness of the deficiency,
or the wealth and wanton luxury of the competitors, happen to animate more
or less the eagerness of the competition. Among competitors of equal wealth
and luxury the same deficiency will generally occasion a more or less eager
competition, according as the acquisition of the commodity happens to be
of more or less importance to them. Hence the exorbitant price of the necessaries
of life during the blockade of a town or in a famine.

[8] When the quantity brought to market exceeds the effectual
demand, it cannot be all sold to those who are willing to pay the whole value
of the rent, wages, and profit, which must be paid in order to bring it thither.
Some part must be sold to those who are willing to pay less, and the low
price which they give for it must reduce the price of the whole. The market
price will sink more or less below the natural price, according as the greatness
of the excess increases more or less the competition of the sellers, or according
as it happens to be more or less important to them to get immediately rid
of the commodity. The same excess in the importation of perishable, will
occasion a much greater competition than in that of durable commodities;
in the importation of oranges, for example, than in that of old iron.

Book 4
Of Systems of Political Economy

Chapter 2
Of Restraints upon the Importation from Foreign Counties
of Such Goods as can be produced at Home

[9] But the annual revenue of every society is always precisely
equal to the exchangeable value of the whole annual produce of its industry,
or rather is precisely the same thing with that exchangeable value. As every
individual, therefore, endeavours as much as he can both to employ his capital
in the support of domestic industry, and so to direct that industry that
its produce may be of the greatest value; every individual necessarily labours
to render the annual revenue of the society as great as he can. He generally,
indeed, neither intends to promote the public interest, nor knows how much
he is promoting it. By preferring the support of domestic to that of foreign
industry, he intends only his own security; and by directing that industry
in such a manner as its produce may be of the greatest value, he intends
only his own gain, and he is in this, as in many other cases, led by an invisible
hand to promote an end which was no part of his intention. Nor is it always
the worse for the society that it was no part of it. By pursuing his own
interest he frequently promotes that of the society more effectually than
when he really intends to promote it. I have never known much good done by
those who affected to trade for the public good. It is an affectation, indeed,
not very common among merchants, and very few words need be employed in dissuading
them from it.

[10] What is the species of domestic industry which his capital
can employ, and of which the produce is likely to be of the greatest value,
every individual, it is evident, can, in his local situation, judge much
better than any statesman or lawgiver can do for him. The statesman who should
attempt to direct private people in what manner they ought to employ their
capitals would not only load himself with a most unnecessary attention, but
assume an authority which could safely be trusted, not only to no single
person, but to no council or senate whatever, and which would nowhere be
so dangerous as in the hands of a man who had folly and presumption enough
to fancy himself fit to exercise it.

[11] To give the monopoly of the home market to the produce
of domestic industry, in any particular art or manufacture, is in some measure
to direct private people in what manner they ought to employ their capitals,
and must, in almost all cases, be either a useless or a hurtful regulation.
If the produce of domestic can be brought there as cheap as that of foreign
industry, the regulation is evidently useless. If it cannot, it must generally
be hurtful. It is the maxim of every prudent master of a family never to
attempt to make at home what it will cost him more to make than to buy. The
tailor does not attempt to make his own shoes, but buys them of the shoemaker.
The shoemaker does not attempt to make his own clothes, but employs a tailor.
The farmer attempts to make neither the one nor the other, but employs those
different artificers. All of them find it for their interest to employ their
whole industry in a way in which they have some advantage over their neighbours,
and to purchase with a part of its produce, or what is the same thing, with
the price of a part of it, whatever else they have occasion for.

[12] What is prudence in the conduct of every private family
can scarce be folly in that of a great kingdom. If a foreign country can
supply us with a commodity cheaper than we ourselves can make it, better buy
it of them with some part of the produce of our own industry employed in
a way in which we have some advantage. . . .